Pradnya Wadia

PG-Finance (2015-2017)
Roll No- 163

Ratio Analysis for Banks

Introduction
The banks selected for ratio analysis are HDFC and Kotak Mahindra.
Reason for selecting these two banks is they both belong to the private
sector and HDFC has the highest market cap whereas Kotak comes third in
the list of private banks market cap. HDFC and KOTAK are both growing at
a phenomenal rate and a ratio analysis and comparison for both would
help better understand the road ahead.
Overview
HDFC Bank
The Housing Development Finance Corporation Limited (HDFC) was
amongst the first to receive an 'in principle' approval from the Reserve
Bank of India (RBI) to set up a bank in the private sector, as part of RBI's
liberalisation of the Indian Banking Industry in 1994. The bank was
incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995.
HDFC Bank's mission is to be a World Class Indian Bank. The objective is
to build sound customer franchises across distinct businesses so as to be
the preferred provider of banking services for target retail and wholesale
customer segments, and to achieve healthy growth in profitability,
consistent with the bank's risk appetite.
The HDFC Group holds 21.34 % of the Bank's equity and about 18.58 % of
the equity is held by the ADS / GDR Depositories (in respect of the bank's
American Depository Shares (ADS) and Global Depository Receipts (GDR)
Issues). 32.04 % of the equity is held by Foreign Institutional Investors
(FIIs) and the Bank has 4,74,443 shareholders.
The shares are listed on the BSE Limited and The National Stock Exchange
of India Limited. The Bank's American Depository Shares (ADS) are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the
Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock
Exchange under ISIN No US40415F2002.

Kotak Mahindra Bank

Since the inception of the erstwhile Kotak Mahindra Finance Limited in
1985, it has been a steady and confident journey leading to growth and
success. In February 2003, Reserve Bank of India (RBI) gave the licence to
Kotak Mahindra Finance Ltd., the group's flagship company, to carry on
banking business. Reserve Bank of India (RBI) approves merger of ING
Vysya Bank with Kotak Mahindra Bank effective April 1, 2015
Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The
bank offers personal finance solutions of every kind from savings accounts
to credit cards, distribution of mutual funds to life insurance products.
Kotak Mahindra Bank has a network of 1,336 branches and 2,044 ATMs
spread across 702 locations in the country. The total strength of 1,40,000+
Shareholders.

Ratio Analysis
S
r.
N
o

Types of Ratios

Banks
Yr (2015-16) INR('000)
KOTAK

HDFC

Liquidity Ratios
1

Cash to demand
deposit
Cash and Bank
Balance
Demand Deposit
Analysis

10,87,97,154

389188380.00

23,28,16,771
88,42,46,701
0.47
0.44
Kotak has a higher profitability ratio against HDFC, this
shows that probability of default on its payment
obligation is lower for Kotak as a higher ratio signifies
lower default probability due to higher liquidity. The
difference in ratios is marginal and hence can also be
attributed to the fact that the volume of deposits held
by HDFC is higher.

Demand to Time
Deposit
2

Total Demand
Deposit
Total Time Deposit
Analysis

Short term
Investment To
Total Assets
Short term
Investment
Total Assets
Analysis

SLR to Total
Investment
SLR
Total Investment
Analysis

23,28,16,771

88,42,46,701

85,86,66,239
3,10,11,33,421
0.27
0.29
Kotak has a lower ratio than HDFC marginally.
However the ratios are almost at par. This shows that
both the banks are trying to maintain adequate
liquidity.

5,88,14,813

29,19,42,854

1,92,25,97,905
7,08,84,55,651
0.03
0.04
Ratio of HDFC is higher than Kotak. The banks try to
maintain a balance between liquidity and profitability.
Hence they may have less liquid investments to
achieve higher profitability.

39,56,80,943
1,47,05,98,575
51,26,02,202
1,63,88,57,691
0.77
0.90
This ratio shows that HDFC is more conservative in
maintaining liquidity as against Kotak due to the
higher volume of deposits maintained by HDFC

Profitability Ratios
1

Net Profit Margin

Net Profit
Total Income
Analysis

Asset Utilisation
Ratio
Total Income
Total Assets
Analysis

2,08,97,790
12,29,62,131
18,99,64,179
70,97,31,684
0.11
0.17
HDFC has a higher margin , this shows that HDFC
operations are more efficient than that of Kotak and
hence has a higher profit margin

18,99,64,179
70,97,31,684
1,92,25,97,905
7,08,84,55,651
0.10
0.10
The asset utilisation ratios of both the banks are at
par, this shows that both the banks are trying to
optimise asset utilisation.
3

Cost of Funds
Interest Expense
Interest Bearing
Deposits &
Borrowing
Analysis

Net Interest
Margin
Total Interest Income
- Total Interest
Expense
Total Assets

9,48,38,100
1,59,61,83,606

32,62,99,330
5,99,44,26,666

0.06
0.05
The cost of funds is lower for HDFC as against Kotak ,
this means that bargaining power of HDFC is higher
than Kotak in the market and hence can benefit from
lower cost of funds

6,90,03,738

27,59,15,121

Analysis

1,92,25,97,905
7,08,84,55,651
0.04
0.04
Both command the same interest margin hence both
the banks are trying to optimise their respective
interest income.

Return on Equity
Net Profit
Equity Shareholders
funds

2,08,97,790
33,36,06,410

Analysis

12,29,62,131
72,67,77,647

0.06
0.17
HDFC has a very high ROE as compared to Kotak,
which shows that investors can expect higher returns
from HDFC and shares of HDFC are more valuable
than Kotak

Ratio Showing Efficiency

1

Operating
Efficiency
Operating Expense
Total Assets
Analysis

Non-Interest
Income to Total
Income
Non-Interest Income

54715197
169797000
1,92,25,97,905
7,08,84,55,651
0.03
0.02
As has been seen HDFC has a lower ratio which
signifies it has a higher operational efficiency than
Kotak

2,61,22,341

10,75,17,233
4

Total Income
Analysis

Productivity per
3 employee
NPAT
No. of Employees
(in crores)
Analysis

18,99,64,179
70,97,31,684
0.14
0.15
Both the banks are almost at par in this case as they
are trying to expand their horizon by offering other
services beyond loans and advances to improve
profitability

20897790000
122960000000
46,500
87,263
449414.8387
1409073.72
HDFC has showcased higher productivity per
employee through earlier ratios. Also attrition rate in
HDFC is lowest among all the banks which shows that
a stable work environment influences better
productivity

SummaryFrom the overall ratio analysis it can be seen that HDFC scores higher
than Kotak in terms of liquidity , profitability and efficiency. Though Kotak
matches its scale in asset utilisation and net interest margin , HDFC
benefits from its eearly entrance in the banking sector which Kotak would
take time to build upon in the future.

Strengths & Weaknesses

HDFC
Strenghts

HDFC bank is the second largest private banking sector in India having
2,201 branches and 7,110 ATMs
HDFC bank is located in 1,174 cities in India and has more than 800
locations to serve customers through Telephone banking
The
banks
ATM
card
is
compatible
with
all
domestic
and international Visa/Master card, Visa Electron/ Maestro, Plus/cirus
and American Express. This is one reason for HDFC cards to be the
most preferred card for shopping and online transactions
HDFC bank has the high degree of customer satisfaction when
compared to other private banks

The attrition rate in HDFC is low and it is one of the best places to work
in private banking sector
HDFC has lots of awards and recognition, it has received Best Bank
award from various financial rating institutions like Dun and Bradstreet,
Financial express, Euromoney awards for excellence, Finance Asia
country awards etc
HDFC has good financial advisors in terms of guiding customers
towards right investments

Weakness

HDFC bank doesnt have strong presence in Rural areas, where as ICICI
bank its direct competitor is expanding in rural market
HDFC cannot enjoy first mover advantage in rural areas. Rural people
are hard core loyals in terms of banking services.
HDFC lacks in aggressive marketing strategies like ICICI
The bank focuses mostly on high end clients
Some of the banks product categories lack in performance and doesnt
have reach in the market
The share prices of HDFC are often fluctuating causing uncertainty for
the investors

Kotak Mahindra
Strenghts

4th Largest bank with 1333 branches and 2,032 ATMs

Strong presence in West , South and North India post merger with ING
Vyas
Differentiated proposition for each customer segment
Good relations with large corporate and HNIs
Wide product portfolio including consumer loans, agro finance ,robust
capital profile etc.
Banks mobile application is rated amongst the best in Indian banking.

Weakness

Late entrant in banking sector

Needs more presence abroad and in rural areas
More focus on retail customers and needs to acquire HNI customer
base

Cash and Bank Balance

KOTAK
10,87,97,1
54

Cash and Balances with Reserve Bank of India

Balances with Banks and Money at Call and Short Notice

6,90,34,348
3,97,62,806

(in
thousands)
HDFC
38918838
0.00
30,05,83,08
7
8,86,05,293

1,38,64,30
,224
23,28,16,77
1
29,49,47,21
4
85,86,66,23
9

5,46,42,41
,920
88,42,46,70
1
1,47,88,61,
798
3,10,11,33,
421

51,26,02,2
02
40,76,09,72
0
67,13,066

1,63,88,57
,691
1,25,71,05,
578
7,39,032

Calculation Appendix

Total Deposit
Demand Deposits
Savings Bank Deposits
Term Deposits / Time Deposits

Total Investment
Government Securities
Shares

Debentures and Bonds

Subsidiaries and Joint Ventures
Short term Investment (Units, CDs/CPs, PTCs and security
receipts)
Investments outside India in

5,18,63,054
74,70,096

Short term investments

call money
Short term Investment (Units, CDs/CPs, PTCs and security
receipts)

5,88,14,813
2,01,08,900

3,87,05,913
2,40,353

4,88,73,774
2,78,29,565
29,05,82,98
7
1,37,26,755

3,87,05,913

29,19,42,85
4
13,59,867
29,05,82,98
7

1,92,25,97
,905

7,08,84,55
,651

NDTL (Total liabilities - Assets with the banking system)

Total liabilities (including Liabilities of the banking system
)
Assets with the banking system (call money with other
institutions not included)

39,56,80,9
43
1,88,41,94,
966
1,92,25,97,
905

1,47,05,98
,575
7,00,28,50,
358
7,08,84,55,
651

3,84,02,939

8,56,05,293

Net Profit

2,08,97,79
0

12,29,62,1
31

Interest Earned

18,99,64,1
79
16,38,41,83
8

Other Income

2,61,22,341

70,97,31,6
84
60,22,14,45
1
10,75,17,23
3

Interest Expense

9,48,38,10
0

32,62,99,3
30

Total Interest Income - Total Interest Expense

6,90,03,73
8

27,59,15,1
21

Equity Shareholders funds

33,36,06,4
10

72,67,77,6
47

Operating Expense

5,47,15,19
7

16,97,97,0
00

Borrowings

20,97,53,3
82

53,01,84,7
46

Total Assets

SLR (21 % of NDTL)

Total Income